You need to borrow $2,500,000 for the purchase of a retail development.You expect to sell the property after 5 years and have the following mortgage options:

a.A 30-year fixed rate mortgage at 8% with no points or prepayment penalties

b.A 30-year fixed rate mortgage at 7% with 3 points and a 1% prepayment penalty if repaid within the first 7 years

c.A 30-year adjustable rate mortgage with no points or prepayment penalty.Mortgage contract rates for loans of this size and risk are currently 6.75%.Rates are expected to rise to 7% in year 2, 7.25% in year 3, 7.75% in year 4, and 8% in year 5.

Which loan option gives you the lowest effective borrowing cost?

I calculated the following answers.

Loan A 8% Loan B 7.16% Loan C 7.30%